HALISTER1: AUCTION PREVIEW: Large Cash Flows to Support New 10Y BTP Sale

AUCTION PREVIEW: Large Cash Flows to Support New 10Y BTP Sale

(Bloomberg) -- Italy to sell 2.2% 06/2027 for EU3.5-4b, 0.35% 11/2021 for EU2.25b-2.75b and CCTeu 02/2024 for EU1.75-2.25b at 11am CET.
  • Italy will repay (old 10y) EU24.4b on Feb. 1, with EU6.5b in coupons, which may support the sale
  • NatWest Markets (Oriane Parmentier)
    • 10y area has been cheapening recently in Italy vs 5y and 30y but also against Spain; auction presents a buying opportunity on the 5s10s30s fly as a short-term RV trade
      • Enter as 23bps, target 13bps, stop 27bps
  • JPMorgan (strategists including Gianluca Salford)
    • 5Y benchmark has underperformed on the curve since the start of the year and is now trading with a benchmark discount of around 1bp vs 1bp premium in late Dec. 2016; current benchmark discount is broadly fair
    • New 10Y benchmark will be issued in a cheap part of the curve; expect the new 10Y benchmark to be issued at a small or zero premium relative to the surrounding bonds, similar to last two new 10Y BTPs
  • UniCredit (Alessandro Giongo)
    • 5y looks appealing vs 05/2021 bond, trades 12bps cheaper in Z-spread terms (a historical high) and vs 08/2021, trading 7bps cheaper
    • Expiration of EUR 24.4b of an old 10Y should support BTPs
  • Mizuho (Antoine Bouvet)
    • Long-end of the BTP curve stands to perform in a renewed spreads widening environment, while valuations in the 5Y area are seen to be unsustainable expensive
    • New 12/2026-07/2027 roll was indicated on Bloomberg around the +9.5bps mark on Friday, slightly more expensive than FV estimate of +10bps
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
UCG IM (UniCredit SpA)

People
Alessandro Giongo (UniCredit SpA)
Antoine Bouvet (Mizuho Financial Group Inc)
Gianluca Salford (JPMorgan Chase & Co)
Oriane Parmentier (Royal Bank of Scotland Group PLC)

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